12 May 2019 Business

Heidelberg cautious as conservative nature of print slows technology take up

Heidelberg says that a slow down in orders points to the importance of transforming the equipment manufacturer into a digital business.

The take up of the Heidelberg Primefire 106 inkjet press is slower than expected, one of the factors leading Heidelberg to adopt a more cautions outlook for the next financial year. The uncertainty in the world economy and the unexpected blocking of its acquisition of MBO are also factors the company says.

Consequently, instead of continued growth the company is expecting stable conditions for the current year with slower sales growth and a greater proportion of revenue coming from consumables and service to counter slowing demand for capital equipment caused by the slowing world economy. This underlines the importance of the journey the business is on.

“There is no alternative to the ‘Heidelberg goes digital’ strategy,” says CEO Rainer Hundsdörfer. He plans to speed up the digital transformation as it moves to a model based on recurring revenues rather than one dominated by machine sales and subject to the vagaries of the economic cycle. Heidelberg has achieved the 30 subscription contracts it aimed for in the 2018/19 financial, and is confident that expanding interest will lead to more. It has previously stated it wants a further 70 deals in the current financial year. And the company remains confident in the long term prospects for Primefire 106.

“However, with underlying economic conditions making companies more reluctant to invest in new technologies, expectations regarding a ramp up in digital printing will need to be more conservative than originally planned,” Hundsdörfer says. “Economic conditions are delaying medium term prospects.”

Nevertheless the company reached its year end targets thanks to sales achieved in the final quarter. Its revenue was 3% higher at €2,490 million (€2,420 million). Ebitda rose to €180 million (€172 million). The uncertainty around the US-China trade war and Brexit is undermining confidence for investment, though Heidelberg enjoyed a strong Print China where it has launched the subscription model with hopes that this can offset some of the uncertainty that it faces. There was also strong interest in the Primefire with several hundred visitors to an open house at the first Chinese customer for Primefire, says Hundsdörfer.

“The potential is a big as it has ever been. The machine is well received and the quality of the machines are printing is perfectly sellable quality. But it is sometimes difficult to get the customer to sign the order. They want to wait a month or a quarter before committing,” he says. The conservative nature of the industry is being this reluctance.

The subscription model is evolving to accelerate the transition from a transactional business based on sales of machinery into a recurring revenue business based on contracts for service, consumables and through the subscription model, the presses and finishing equipment. This is increasingly important, stresses Hundsdörfer.

“We are trying to expand the offering and there will be more variations to the subscription contract. We will start to offer the contracts for supply of consumables and services to existing customers and two or three years down the road when it is time to replace the press, we can include the machine in the contract so that we can convert current business to recurring revenues.”

A decline in order levels at the end of the financial year is further evidence of the need to transition the company. These stood at €2,559 million compared to €2,588 million 12 months earlier.

The ruling from the cartel office outlawing the acquisition of MBO is described as “not very nice”. It means that Heidelberg will reconsider plans to shift some production to MBO’s Portugal factory with its lower cost of production. It is working on how to outsource further production to China, but has still to make final decisions on how this will be implemented.

By Gareth Ward

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Rainer Hundsdörfer

Rainer Hundsdörfer

Heidelberg's CEO says that the transformation of Heidelberg into a business where annuity revenues dominate needs to accelerate. Revenues based on service, consumables and subscription contracts promise more consistent income and greater profits.

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